Sarasota attorney and Icard Merrill firm lose malpractice lawsuit

Wednesday

May 22, 2013 at 11:13 AMMay 22, 2013 at 10:13 PM

Jury says government agency must be paid $1.3 million after firm breached its fiduciary duty to a bank.

By JOSH SALMAN

A federal jury on Wednesday found in favor of the Federal Deposit Insurance Corp. in a legal malpractice case against one of Sarasota's most prominent law firms and attorney Robert Messick, one of its partners.

After seven days of testimony, jurors determined that Messick and his firm, Icard Merrill, committed professional malpractice and breached a fiduciary duty to the now-defunct First Priority Bank when representing the lender on a $5.3 million boom-time real estate loan.

The decision essentially affirmed the FDIC's claim that by representing two other parties involved in the same deal — and potentially withholding key information on land collateral — Messick “deprived the bank of its ability to make an informed decision on the loan.”

Although the jury sided with the FDIC on both counts, it reduced a monetary damages award to about $1.2 million. The agency had sought $4.6 million.

Before the verdict, Messick and the firm's defense team filed a motion asking the federal judge in the case to overturn any decision to award financial damages based on flawed FDIC tactics. U.S. District Court Judge Virginia Hernandez-Covington is slated to rule on that motion within 30 days, and could also overturn Wednesday's verdict.

The legal pair's defense team also said it plans to appeal the seven-member jury's decision.

“It's truly, truly surprising to hear that result based on the evidence that was presented,” said Dennis Waggoner, a Tampa attorney representing Messick and Icard Merrill. “None of the verbal testimony supported the FDIC, and frankly, the written records didn't support their claims, either. The jury, I guess, chose to ignore that.”

18-month tussle

The jury's decision ended an 18-month legal bout between the federal government and one of Southwest Florida's most respected law firms over a 2006 real estate loan.

The loan, and others like it that slipped into default, ultimately caused First Priority to crumble.

Acting as a receiver for the now-defunct Bradenton bank, the FDIC filed a civil suit in December 2011 alleging malpractice and breach of fiduciary duty against Icard Merrill and Messick.

The case stemmed from a loan to a company led by former Longboat Key real estate investor Mark Brivik, who along with six other investors attempted to develop 45 acres along the Upper Manatee River as part of a luxury subdivision dubbed River Meadows.

Messick represented First Priority on the deal. But he also represented Brivik and a secondary lender that stood to benefit if the loan was made.

Brivik's company defaulted on the mortgage just 18 months after the loan was issued, records show.

The FDIC contended that Messick's conflict of interest, along with other misrepresentations to First Priority, directly contributed to losses that were among the $96 million ultimately swallowed by the federal government's banking insurance fund when First Priority went under.

The bank was the first in Florida to fail in what would expand into a financial crisis that would tip the country further into recession in 2008. The adverse impacts — joblessness and real estate depreciation, chiefly — can still be felt today.

The FDIC argued that Messick's conflict prevented him from giving First Priority proper legal direction.

The agency also claimed Messick failed to advise the bank that 25 acres of additional collateral — slated to become a second phase of River Meadows — did not exist.

That waterfront land represented the largest and most valuable piece of five parcels eyed for a 97-home luxury community, complete with private boat docks and other amenities.

Without that collateral, the agency's lawsuit contended First Priority would have never lent the $5.3 million to Brivik, though former bank officials testifying on behalf of Icard Merrill and Messick said otherwise.

Al Perez, an attorney representing the FDIC, declined to comment at length on the jury's decision Wednesday.

“I am thankful for the opportunity to represent the FDIC in this important case,” he said.

The jury reached a decision on the case after deliberating for much of the afternoon Tuesday and again for two hours Wednesday.

The $1.2 million in damages they awarded the FDIC will likely be covered under Icard Merrill's estimated $2.5 million malpractice insurance policy, according to the FDIC.

Relied on documents

Since the start of the trial on May 13, FDIC attorneys had relied largely on a number of official bank documents that suggested the 25 acres in question were always considered to be a part of the deal.

That included a credit approval request, minutes of a loan committee meeting where the debt was approved, and a sketch of the parcels compiled by Icard Merrill that identified the acreage as the “option property.”

Messick's defense team countered with four bank witnesses who each said they were aware that the so-called option contract on the 25 acres was actually just a right of first refusal, and that the FDIC was wrong in its assessment of the loan.

Each of the four also testified that the inclusion of the additional 25-acre parcel had no bearing on their decision to issue the loan.

Those witnesses included Messick and the bank's former chief lending officer, Steve Putnam; chairman Alan Zirkelbach; and president George Najmy.

The First Priority executives had previously agreed to a $1.75 million settlement with the FDIC for their role in the bank's collapse.

Those three bank executives also testified that they knew Messick was also representing Brivik in the deal, but because the loan was not complex and only involved drafting documents, they agreed to retain him anyway, they said.

Putnam told the jury he was the one to waive that conflict of interest on behalf of the bank, although he acknowledged that did not have proper authority to do so. That waiver was never put in writing, which is required by law today but was not at the time of the transaction.

“I trusted him,” Putnam said of Messick during the trial. “We had worked together for nearly 20 years.”

Waggoner, Messick's attorney, noted that the FDIC failed to present a single witness during the trial to counter the testimony by bank officials and Messick.

Each side also hired banking and legal ethics experts to testify as to whether Messick violated his duties as an attorney for First Priority.

One professor of law at Yale University, commissioned to testify by the FDIC, called the issue at trial the worst case of a conflict of interest he had seen by an attorney in his entire career.

Larry Fox, who also is a practicing attorney and helped craft ethics rules for the American Bar Association, now uses the Messick case as an example in classes to teach students what not to do, he said.

That testimony seemed to swing the momentum from Messick's defense in favor of the FDIC.

“I can't get my head around it,” Fox said. “You could teach three classes on this case alone. Too many interests collided, and the results were a disaster.”

In 2009, Brivik and his wife were arrested on charges of fraud and securities violations in connection with the same River Meadows real estate development. Those charges were dropped six months later.

Brivik was never called to the stand to testify in the malpractice trial.

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